Determine the value of a European foreign currency put if the call is at $0.05,the spot rate is $0.5702,the exercise price is $0.59,the domestic interest rate is 5.75 percent,the foreign interest rate is 4.95 percent and the options expire in 45 days.
A)$0.069
B)$0.031
C)$0.050
D)$0.517
E)none of the above

Question

Quizplus · Accepted Answer

The correct answer is A because the value of a European foreign currency put is given by the formula:Put value = Max(0, K - S*e^(-r*t))where:K is the exercise priceS is the spot rater is the domestic interest ratet is the time to expirationIn this case, we have:K = $0.59S = $0.5702r = 5.75%t = 45 daysPlugging these values into the formula, we get:Put value = Max(0, $0.59 - $0.5702*e^(-0.0575*45/365))= Max(0, $0.0198)= $0.0198Therefore, the value of the European foreign currency put is $0.0198.

Determine the Value of a European Foreign Currency Put If